Do promises to alleviate third world debt mean much?

Recently, G7 countries (G8 minus Russia) offered a deal of $40 billion cancellation of third world debt, praised as a “historic breakthrough” by some mainstream media outlets. Bob Geldof said it was “a victory for the millions of people in the campaigns around the world” and Bono called it “a little piece of history”.

While this is very encouraging, there are some concerns.

Getting these world leaders to talk about these issues is one thing. What about the substance and what will actually be discussed? In the past, there have been many headline-grabbing promises by world leaders for third world debt cancellation or relief for the poorest and most ravaged countries, and yet those past promises have hardly been kept. For example:

The debt cancellation doesn’t actually happen;

The debt cancellation is very slow to happen;

The amount of money or cancellation promised is actually far less due to fancy spin and adding in money that has already been earmarked for this purpose

For poor countries, third world debt is a crucial issue. Crippling third world debt kills:

Rich countries have pressured these poor countries to sacrifice health and education spending and prioritize on debt repayment;

Rich countries have protected their agricultural markets while forcing poor countries to open theirs, leading to dumping and flooding of products, driving local people out of businesses and livelihoods.

For rich countries, the debt figures involved are tiny;

For poor countries, these same figures are a matter of life and death:

Note that this cancellation offer is a proposal only. It still has to go through the IMF and World Bank, and donors outside of the G7 will need to agree to this as well. However, given the high profile this proposal has received, it is worth looking at it in some depth because of a number of serious issues such as:

Some of the conditions tied to the proposals may be questionable

The write-off is not as “historic” as the mainstream would like us to believe.

How good has Aid from Rich Countries been in recent years?

As detailed on this site’s Foreign Aid section, aid from rich countries to poor countries has been lacking, despite common perceptions of huge amounts in donations:

Rich countries promised 0.7% of their GNI in aid to poor countries; most do not give anywhere near that amount, so for years, poor countries have lost out on billions

Aid is often tied to unfair conditions such as buying from the donor, or opening up markets to foreign multinationals (from those rich countries), thus making what little aid is given to be even less useful

More money is transferred from poor countries to rich

Aid amounts are dwarfed by the effects of first world subsidies, third world debt, unequal trade, etc

Ironically, in the Cold War past, when aid flows were higher, they didn’t help Africa much, due to the above reasons, as well as keeping supported dictators in power. (Under such conditions of misery, no wonder corruption rose.)

In that context, $40 billion dollars write-off is quite small, and is accompanied by unfair conditions/demands, and political propaganda/spin that makes this appear to be a historic deal.

The next section looks into the details of this proposed debt write-off.